‘Under-reporting or under-declaring of sales by franchisees is rife in the franchise industry…’ This is a bold statement. But is it true?
Based on US auditors research, approximately 15% to 20% of franchise locations are underreporting sales by 15% or more. As a result, locating and correcting underreporting behaviour can increase MSF revenue up to 4% annually. So if franchise msf revenue is £1M, on average £40k additional revenue can be generated.
Indeed, further evidence from the US franchise market, where franchise or royalty auditing is more widespread than in the UK, suggests that a program of audits across the franchise network will derive greater results and greater support from the network, than one off specifically targeted audits against franchises known to be under declaring sales.
Our own findings show that all franchisors receive a boost in returns when an auditor is introduced to the network; creating an amnesty environment, as the individual franchisees attempt to bring their records to good order. Indeed, most franchisees welcome a Franchise Audit program being implemented. It levels the playing field and ensures all franchisees are held to the same obligations. And in terms of the actual results of an audit; on average 95% of the cost of the audit is recovered in full, by fees detected in the audit process.
All Things Financial 